This chapter develops a general framework for the analysis of the relationship among
trade liberalization regimes, environmental regulation, and firm competitiveness.
Using NAFTA as an empirical testing ground, these relationships are explored from
three different disciplinary perspectives. First, the issue is examined from a corporate
strategy perspective, that is, an exploration of the problems facing, and responses of,
firms subject to the administration of discriminatory environmental regulation, with
specific reference to the theory of shelter. A twenty-cell matrix is used to describe
how five different levels of environmental regulation can affect four various types of
firms. Second, the legal implications of regulatory capture/shelter are explored to
better understand the legal processes at play within NAFTA and the legal instruments firms have at their disposal. Specifically, both the national treatment obligations and the legal frameworks that govern environmentally related trade disputes are
analysed. Third, political science perspectives are employed, such as the theory of
complex interdependence and neo-liberal institutionalism, in order to illustrate how
corporations and other stakeholders can influence regulatory processes, and how
international regimes can constrain the protectionist regulatory actions of national
governments.

These three perspectives are combined into a new and unified model relevant for
the analysis of trade and the environment. The strength of this framework lies in the
fact that it is not limited to NAFTA but can be extended to a wide variety of regional
and global contexts that span all levels of environmental regulation and all types of
firms, functioning within different trading regimes.

The North American Free Trade Agreement (NAFTA) is the first international
trade agreement to incorporate environmental regulations ( Globerman 1993). It does this in several provisions within the core NAFTA text but, above
all, through the side agreement establishing the Commission for
Environmental Cooperation (CEC). The institutional fabric of NAFTA, and the CEC in particular, is of great interest to researchers, since it provides an on-
going laboratory to examine propositions from the newly emerging field of
trade and the environment ( Rugman 1995). The work of the CEC is of great
relevance for Canadian business as the CEC is a legally and institutionally
powerful body charged with the review and harmonization of environmental
regulations in North America ( Richardson 1993; Munton and
Kirton 1994; Johnson and
Beaulieu 1996; Winham 1994; Kirton 1998).

The CEC will have an important impact on corporate strategy and Canadian

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